What Is a Currency Exchange Rate?
A currency exchange rate is the price at which one currency can be exchanged for another. Exchange rates fluctuate continuously based on global supply and demand driven by trade flows, capital movements, interest rate differentials, inflation expectations, and geopolitical events. When you see "1 USD = 0.92 EUR," it means one US dollar buys 0.92 euros at that moment in time.
There are two types of exchange rates: the interbank rate (also called the "mid-market" or "spot" rate) — the rate at which banks trade currencies with each other — and the retail rate that consumers and businesses receive, which includes a spread or markup that represents the currency exchanger's profit. This calculator uses the interbank rate sourced from the European Central Bank. The rate you receive at a bank, airport, or foreign exchange counter will typically be 1–5% worse than this rate.
How Exchange Rates Are Determined
Major world currencies operate under a floating exchange rate system, where rates are set by market forces rather than government fiat. Key drivers include:
- Interest rate differentials: Higher interest rates attract foreign capital seeking better returns, increasing demand for that currency and pushing its value up. This is why Federal Reserve rate decisions move global currency markets.
- Inflation: A country with lower inflation than its trading partners tends to see its currency appreciate over time, since its goods remain relatively cheaper and attract more foreign buyers.
- Trade balance: Countries that export more than they import create higher demand for their currency from foreign buyers, which tends to strengthen it.
- Political and economic stability: Currencies of politically stable, economically strong countries are seen as safer stores of value and attract investment inflows.
Understanding Currency Pairs
Exchange rates are always quoted as a pair — a "base" currency and a "quote" currency. EUR/USD = 1.08 means 1 euro buys 1.08 US dollars. The base currency is always 1 unit; the quote currency is how many units of the second currency that 1 unit buys. When you reverse the pair, you take the reciprocal: USD/EUR = 1/1.08 = 0.926. Most major pairs involve the US dollar (USD), euro (EUR), Japanese yen (JPY), British pound (GBP), or Swiss franc (CHF).
Tips for Getting the Best Exchange Rate
When converting currency for travel, international transfers, or purchases, the rate you get can vary significantly depending on where and how you exchange:
- Avoid airport and hotel exchanges: These locations charge the highest spreads and fees, sometimes 8–12% above the interbank rate.
- Use a credit card with no foreign transaction fees: Most major travel cards (Chase Sapphire, Capital One Venture, etc.) charge the Visa/Mastercard network rate — very close to the interbank rate — with no added fees.
- Withdraw local currency from ATMs abroad: ATMs generally offer near-interbank rates; choose to be charged in the local currency rather than your home currency (avoid "dynamic currency conversion").
- Use money transfer services for large amounts: Services like Wise (formerly TransferWise), Revolut, and OFX typically offer rates 1–3% better than banks for international wire transfers.
About This Calculator's Rates
Exchange rates are fetched live from frankfurter.app, which sources data from the European Central Bank and updates daily on business days. The rates shown are mid-market (interbank) rates and are provided for informational purposes. They do not include any conversion fees or spreads that a financial institution may charge. Always confirm the rate with your provider before completing a transaction.